Game Theory Changing the World

http://www.economist.com/node/21527025

This article displays the massive steps that are being made in the area of Game Theory, and how it is changing our world. The article shows the amazing range Game Theory has. Game Theory is being used to solve problems in a multitude of fields, including politics, auctions, negotiations and war.  The article begins with the claim that Bruce Bueno de Mesquita predicted the outcome of the fall of the Egyptian president Hosni Mubarak, 9 months before it happened.  Bruce Bueno de Mesquita is the owner of a consulting firm, that uses game theory to help its clients.  Bruce has made many successful predictions using Game Theory.  Bruce’s predictions are found using Game Theory simulators, where Bruce puts numeric values on many factors that affect the government or player.   The numeric values are assigned to factors such as government goals, political parties, business leaders, unemployment, and a many other factors. The Game Theory simulator is then run with these values. Bruce then can determine the players most likely course of action, or best response. The values in this particulate game are tricky to assign and non-rational emotions often make this particular political game hard to determine.  The notion that it can be done, however is  very exciting.

When the values are more concrete, the game is easier to compute.  The article explains how the use of Game Theory is putting an end to the “Winners Curse”. Dr. Milgrom, another Game Theorist has been using Game Theory to help his clients who participate in auctions. With the use of Game Theory, Dr. Milgrom’s simulation can compute the secret value of other bidders in the auction and determine which items were being overvalued.  Since the numeric values were exact amounts the game is easier to run, therefore the best response can be determined more accurately.  Opposed to the political game, where values were an educated guess.  With the use of Dr. Milgrom’s Game Theory simulator the “Winners Curse” could be eliminated, where a bidder pays to much for an item relative to its real value.  The over valued items are apparent so the bidder will not pay too much for an item, that may not be as valuable as its price. Dr. Milgrom Simulator has been used in practice, saving two of his clients 1.2 Billion dollars over competitors in auctions.

Game theory is advancing at a staggering pace.  The article goes over many other areas Game theory is being extended too such as insurgence location, and negotiations.  These fields are much like the political game model where factors are given a numeric value, and the game is played. It is evident that Game Theory in the future will have much larger influence over our lives that it does today.  The trend seems to suggest that Game Theory could put an end to many problems plaguing business, governments and its people.

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